If you're self-employed or run a small business, you're one of the most important assets that business has. So what happens to your business when something happens to you? This is where business expenses insurance can help.
Business expenses insurance can help your company stay afloat by paying a benefit towards the operating costs of your business if you're unable to work for an extended period of time.
Business expenses insurance helps cover a range of costs including:
- The salaries of staff
- Rent on your business premises
- Phone and internet
- Gas and electricity
- Leasing costs for vehicles and equipment
- Business repairs and maintenance
- Loan repayments
- Accounting and audit fees
- Membership fees of industry bodies, professional associations etc.
- Business expenses plans generally work on a reimbursement basis
- In the event of a claim, the benefit can be used to pay the expenses that are incurred on a monthly basis
- The first payment will be made from the first day after the waiting period and are made monthly in arrears
- The insurance company will generally pay the agreed amount for fixed expenses for the first 2 months of the benefit period. At the end of this initial period, the insurer reserves the right to reduce the benefit if it exceeds the actual expenses incurred.
When will the payment end?
The benefit payment will end when one of the following occurs:
- You are no longer disabled (or partially disabled) as defined by your policy
- The end of the benefit period (provided no extension has been made)
- The date that cover ends on your policy
Although the exact cover offered varies from one insurer to the next, business expenses insurance policies will typically offer the following benefits:
- Total disablement benefit. This benefit is paid if you are totally or partially disabled and unable to work. You will receive a benefit once the waiting period has been completed, and you’ll continue to receive a payout for as long as you are disabled within the benefit period.
- Partial disablement benefit. Business expenses insurance can also pay a partial benefit if you are partially disabled and unable to work, or only able to perform a limited amount of your normal duties.
- Other benefits. Many business expenses insurance policies also include a specific injury benefit, which guarantees a specified benefit payment for a certain period of time when you suffer a listed injury. A crisis benefit may also be included, offering a guaranteed benefit payment if you suffer one of a list of serious medical conditions.
- Reimbursement basis. Most business expenses policies are offered on a reimbursement basis, which means that as you incur business expenses, you’ll receive a monthly benefit to cover those expenses. The maximum monthly benefit you can receive is determined when you apply for cover.
- Fixed expenses only. This type of cover is only designed to cover the fixed expenses of a business, including staff salaries, ongoing office costs and loan repayments. Expenses that are directly connected to production, for example stock, are not covered, while business expenses insurance also does not supply any sort of replacement income for business owners.
- Waiting period. Business expenses insurance pays a benefit for up to 12 months. This gives you the time and freedom you need to recover, and to decide whether you want to return to work or sell or close down the business. The waiting period from the time you claim to the time you receive your first benefit payment is usually around 14 to 90 days - you can nominate the waiting period you desire when you apply for cover.
- 10-hour clause. Another important feature to look for in business expenses insurance is the ability for you to return to work for a certain number of hours each week – typically 10 hours – without it affecting your benefit. This allows you to keep in touch with your staff and clients and assure them of the business’ security, as well as keep yourself up to date with business operations so you are ready to go upon your return.
Some additional options worth considering
Most polices offer additional benefits that are worth considering. These include:
- Specified injury benefit. Guarantees a benefit payment for a specific amount of time if you suffer one of the injuries defined in your policies
- Crisis benefit. Guarantees a benefit payment if you suffer one of a list of medical conditions
- Locum cover. Covers the expense of hiring a locum to ensure your business continues to run smoothly in your absence
What expenses can and cannot be covered?
In general, this is what a business expenses policy can and can't cover:
|What's covered?||What's excluded?|
How are they different?
For many small business owners, income protection insurance can also provide a crucial form of cover. When you’re ill or injured and unable to work, income protection insurance offers an ongoing monthly benefit to replace up to 75% of your regular income. While income protection can provide a supplementary income, it won't cover the ongoing expenses of running a business...this is where Business Expenses cover comes into play.
While income protection policies don’t include any cover for business expenses as standard, some insurers allow you to add optional business expenses cover to your income protection policy. The main benefit of this approach is that you can ensure that both you and your business will be covered if something goes wrong in the future.
Combining income protection and business expenses cover makes it easy to manage your insurance cover through just one policy, while you might also be able to enjoy cheaper premiums by having one combined policy rather than two separate plans. Combining cover also gives you the peace of mind that your family and your business will be financially protected against the unexpected.
But don’t forget...
However, if you do decide to take out business expenses insurance as an option on your income protection policy, make sure the level of cover available is sufficient for your needs.
Read the fine print on your income protection policy to find out whether you can take out additional business expenses cover and determine whether this is the right option for you.
- Peace of mind. You can’t predict the future but you can protect yourself against the unexpected, and business expenses insurance gives you the confidence of knowing you will be able to keep your business running even if you are unable to work.
- Keeps your business afloat. Many small businesses would simply fall apart without their owner around to keep things running, so business expenses insurance ensures that you have a business to return to when you recover.
- Up to 100% coverage. Depending on the monthly benefit amount you nominate, you can cover up to 100% of your fixed business expenses.
- Waived premiums. When you’re receiving a monthly benefit, you won’t have to pay any premiums on your business expenses cover.
- Focus on your recovery. Instead of worrying about the financial stability of your business, business expenses cover gives you the freedom to simply focus on getting better.
Another key advantage of business expenses insurance is that your premium payments are tax deductible. This makes it even more affordable to take out this important form of cover. With this in mind, make sure you keep your receipts and other evidence of your business expenses insurance premium payments so you can claim the money back at tax time.
It’s also worth pointing out that the benefits you receive from business expenses insurance are usually assessable for tax.
What happens if my actual business expenses turn out to be greater than or less than the benefit amount?
If the expenses your business incurs while you are unable to work are less than the maximum benefit amount available, the insurer will typically only pay the amount necessary to cover your expenses. If, however, the business expenses are more than the benefit amount available from your policy, the insurer will only pay your expenses up to the benefit amount - so if you don’t have sufficient cover in place you will end up out of pocket.
*Individual Risk Market 10 Year Review 2007 - 2017, Strategic Insight
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